It seemed to me that so many thought Tuesday was a retest in the market. Anytime you revisit the lows you are creating a retest. The real question is if the retest was successful. On that score, there were some successes and some failures.
The success was in the number of stocks making new lows. There were fewer new lows for the NYSE despite the S&P making a lower low. That is a positive divergence. The failure was that Nasdaq, which barely made a lower low saw an increase of about 100 new lows. So there was no positive divergence there, only the potential for a capitulation reading.
There was a positive divergence in that the Overbought/Oversold Oscillator didn't make a lower low (didn't get more oversold).
There was no positive divergence with breadth. It made a lower low.
Then there is the McClellan Summation Index. It is still heading down. And despite the best efforts to get closer to turning back up, it now requires a net differential of +2,100 advancers minus decliners to halt the slide.
On the sentiment front, the put/call ratio remained relatively high on Tuesday, with the final reading still over 100%. The 10-day moving average is still milling around at the highs, trying to turn lower. The Investors Intelligence Bulls are what really disappointed me. I thought for sure they would fall to the 40s and they fell exactly one point, to 50.5%. That means folks were more bearish last spring in March/April than they are now. Heck, they were more bearish in June than they are now.
Many will feel good about the fact that the S&P bounced off this uptrend line.
But the real question is if Tuesday was the W I talk about so often. Once again, the W pattern typically comes weeks or months later, not so quickly after the initial low. Just go back and look at the chart of the S&P above. I have drawn in the W pattern we saw last spring in blue. That is much more common of the pattern that develops at intermediate term lows than the pattern we see now.
So where are we? I think we're still in the process of trying to have an oversold rally. We should rally enough to make everyone feel good again, or at least better than they do now. Imagine if you will, maybe the S&P rallies back at/near last week's highs and just as everyone breathes a sigh of relief we come back down, maybe even forming a small head and shoulders bottom?